Allocate Your Assets: Equities, Bonds and Cash – Is Your Investment Portfolio Sufficiently Diversified?
The major difference between investment and speculation is, the former emphasizes on capturing opportunities in the long-term, as oppose to the concept of going all in and getting rich overnight of the latter. By allocating their capital in different investment strategies, investors may diversity their portfolio at a lower cost. Compared to investing in a single security, a diversified portfolio also allows greater control over risks.
MPF, for instance, is one of such diversified portfolio, for it invests in various types of funds. As an employee making monthly contributions to your MPF, do you know how you should allocate your assets? Is your current portfolio sufficiently diversified?
Answer the three questions below and the answer (A, B or C) that you choose most may indicates the type of investor you are.
1. What is your investment objective?
A. Capital protection
B. Combat inflation
C. Obtain returns
2.Which of the following best describes the level of risk you can tolerate?
A. I expect no or limited investment loss within a year
B. I am able to accept a medium level of investment loss within a year
C. I am able to accept a high level of investment loss within a year
3. What is your investment knowledge and experience?
A. I have little or no knowledge of investments outside of savings accounts or time deposits
B. I have general knowledge of investment and experience in investing in bonds (such as iBond) or individual stocks
C. I frequently engage in the trading of investment instruments
Type A - Conservative
Conservative investors typically allocate 70% of their assets in fixed income solutions (such as bonds), 20% in equities, and reserve 10% for liquidity.
Type B - Moderately Aggressive
Moderately aggressive investors typically allocate approximately 50% of their assets in equities or other investment products, 40% in fixed income solutions or low-risk investment products, while reserving 10% for liquidity.
Type C - Aggressive
Aggressive investors typically allocate approximately 70% of their assets in equities or even some high-risk investment products, 20% in bonds and reserve 10% for liquidity.
The above questions and indicators are for reference only. While planning for your investment, take into account your risk tolerance and financial situation as you allocate your assets. Generally speaking, the greater your tolerance against risk, the more aggressive your portfolio tends to be. Such portfolio would likely consist of more potential growth assets such as equities and structed investment products. On the contrary, the lower your tolerance against risk, the more conservative your portfolio tends to be. Such portfolio would likely consist of more defensive assets such as cash, bonds and time deposits.
An investor’s age, income and family expenses are also considered in any portfolio and risk tolerance assessments. Before making any investment decisions, seek professional consultation and have a detailed evaluation of your risk profile. Just remember, do not rush into any investment without thorough understanding of the offerings.
The original content and opinions above are provided by New Media Group and Principal has no editorial responsibility for the content of the article. This information is for general reference and investor education purposes only. Investment involves risks, and prices of fund units may fluctuate. You should not rely solely on this information to make investment decisions.